columbia university consulting guidebook

Why do chickens wear red contact lenses? Why do consulting companies use case interviews? How can you sell peas on the Internet? How now brown cow?

How many rollerblades in New York City?

How much does the Empire State Building weigh? What should you do next? Are there two dogs in the world with the same number of hairs?

Management Consulting Association

Guidebook 2002

Cases Industry Overview Frameworks Interview Guide Classwork

How big is the U.S. Market for Band-Aids?

Columbia Business SchoolWhy are manhole covers round?

How many beer bottles are currently in circulation in the United States?

Table of Contents

INTRODUCTION ......................................................................................................................... 3 THE MANAGEMENT CONSULTING ASSOCIATION ......................................................... 4 INDUSTRY SNAPSHOT........................................................................................................... 5-8 1ST YEAR CORE CLASS CONSULTING INFORMATION ............................................ 9-12 THE INTERVIEW GUIDE ................................................................................................... 13-27 The basics of consulting interviews ..................................................................................... 13-14 Methods for dealing with interview questions ..................................................................... 15-18 The audience who you are talking to ................................................................................ 19-21 Consulting questions what you may hear or say ............................................................... 22-25 What consultants are looking for how they mark your performance ..................................... 26 Conclusions ............................................................................................................................... 27 FRAMEWORKS .................................................................................................................... 28-32 COMMON CASE TYPES ..................................................................................................... 33-34 THE CASES .......................................................................................................................... 35-117 Business type cases (full answers) ....................................................................................... 36-88 Business type cases (abbreviated answers) ........................................................................ 89-104 Estimation cases ............................................................................................................... 105-111 Game show cases.............................................................................................................. 112-117 USEFUL FACTS & CONVERSIONS.............................................................................. 118-119

Columbia Business School Management Consulting Association Guidebook 2002 Please do not duplicate, copy, print or photocopy 2

IntroductionThe Management Consulting Association of Columbia Business School is pleased to present the Guidebook 2002 to assist CBS students in preparing for consulting job interviews. A collection of methods and sample cases has been compiled from consulting firms, students and other sources. Case interviews are used primarily to assess two qualities important in consulting: logical reasoning and business acumen. In addition, consulting firms monitor communication skills and try to gain insight into your personality (are you enjoying yourself? Are you easily frustrated?). They are also looking for you to demonstrate creativity by taking advantage of opportunities to yes, that dreadfully overused phrase think out of the box. This Guidebook begins with a snapshot overview of the management consulting industry. Next is a compilation of the most important consulting-related concepts and information taught in the first semester core classes at Columbia. Third, our interview guide section, which discusses in depth the dos and donts of consulting interviewing and preparation. The Guidebook finishes with a discussion of the different case types and kinds of frameworks used to answer them. The frameworks and solutions to sample cases used in this book are by no means definitive. Time and again recruiters will emphasize that there is no single correct answer to cases. That said, the solutions provided in the sample cases are just one recommended option. For the first time ever, we have decided to provide a soft copy of the casebook. Through this, we not only hope that the cost of the book is reduced, but also that it is easily available on your computers. We would therefore request you to respect the efforts of the many people who volunteered their time to put this book together (including our esteemed VPs of Publications) by not copying, duplicating or photocopying it. The price of the book will now go towards attracting the best cases for inclusion in the casebook. A former consulting interviewer, Nicolas Reuttner, contributed the interview guide and we further note that the copyright on this section is his own. The book is not to be reproduced without the written consent of the Management Consulting Association of Columbia Business School. Our sincere thanks go to the MCA members who have contributed the new cases for this edition:

Dieter Fenkart-Froeschl Rajiv C Lochan

Prithvi Prabhu

Joshua Hubbert


The Management Consulting Association

For information about joining the Management Consulting Association or to learn more about our activities this year, please contact one of the following officers: President Woody Paik [email protected] [email protected] [email protected] [email protected] [email protected]

Vice-President of Corporate Relations Manal Toukan st Vice-President of Corporate Relations (1 year) Matt Stover Vice-President of Finance and Membership Vice-President of Finance (1st year) Lori Ginsburg Bertrand Lam

Vice-President of Special Events Vice President of Special Events (1st year) Vice-President of Publications Vice-President of Publications (1st year) Vice-Presidents of Summer Term

John Crawford Tim Morningstar Prateep Sen Fabrizio Bigioni Whitman Kwok Bryant Huber Henry Agusti Kyle Alexander Prithvi Prabhu Davin Thigpen Raphael Ezry Lawrence Wong

[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Vice-President of Education Vice-President of Education (1st year) Vice-President of Mentoring Vice-President of Mentoring (1st year) Vice-President of Technology Vice-President of Technology (1st year)

All club information is also posted on our web site at: www.gsb.columbia.edu/students/organizations/mca/mca.html

Columbia Business School Management Consulting Association Guidebook 2002 4 Please do not duplicate, copy, print or photocopy

Industry Snapshot

Industry Snapshot: Management ConsultingOVERVIEW: Trends Following intense growth throughout the middle to late 1990s, many leading management consultancies have recently experienced significant downturns. The decline of the dot-com bubble, the slowing of the economy, and increased competition in the industry has resulted in tightening across all major consulting services-- strategy, operations, implementation, and technology consulting. Many prominent players in the industry have delayed start dates for new employees and cut back on their existing staff. Several of the smaller, niche firms have scaled back operations, been acquired, or exited the industry. Lifestyle While there is some variation among companies and specific assignments, almost all consulting work requires a significant amount of travel. Clients pay for support and, more often than not, this translates into presence at the client location. Acknowledging the strain this places on employees personal lives, consulting firms are becoming increasingly responsive to demands for a balanced lifestyle. Many firms have implemented programs to minimize travel days and maximize nights at home. While their weekdays (Monday through Thursday) can be long, consultants are generally assured of spending Fridays at the home office and weekends at home. Work Environment Since project work is split up among several consultants, teamwork plays a big role in the workplace. This means that team members get to know each other really well after completing a project together. The general atmosphere is one of high learning, knowledge-sharing, and cooperation. JOB FUNCTIONS: Strategy While most problem-solving involves some sort of strategy, there are companies, groups, and assignments that are particularly focused on high-level strategy development. Interpreted broadly, strategy includes the development of an overall approach to improving a companys competitive position across multiple areas. Operations/Process Improvement A subset of strategy, operations focuses on improving the product or service-generating part of the enterprise. MBA students tend to overlook the strategic aspects of this function and its importance to the client organization. Their perception is that operations is not as glamorous as strategy, when in reality operations can be quite strategic and is usually the key to a successful organization. Change Management/Organizational Design Another subset of strategy, change management relates specifically to human resource issues within organizations - emphasizing alignment of culture, people, and structure with strategy, products, processes, and technology.Columbia Business School Management Consulting Association Guidebook 2002 Please do not duplicate, copy, print or photocopy 5

Implementation/Information Technology This takes the strategy development one step further by executing the approach. For many consulting firms, this happens to be the bread-and-butter part of the business, with a significant amount of revenue coming from information technology integration. SKILLS & REQUIREMENTS: Analytical and problem-solving ability Teamwork Customer focus Intellectual curiosity Listening skills/communication skills Leadership

COMPENSATION & CAREER PATH: Job Title Degree/Yrs. Experience Reqd. Typical Salaries* Analyst $35-60K BA/BS Associate Consultant $100-130K MBA Senior Consultant $130-180K 1.5 3 years Project/Engagement Manager $180-220K 3 5 years Junior Partner/Principal $250-500K 5 7 years Senior Partner/Director $500K+ 10 12 years Dept. Head / Mng. Director $1,000,000+ 12+ years * Note that salaries will vary by individual and by firm. These figures are meant to provide a general guideline. 2001 Columbia Business School Students Compensation Package: Summer Interns: $8,000 - $10,000/month Graduates: $100,000 - $225,000 RECRUITING PRACTICES & STRATEGY: Presentations for summer internships begin in October. While networking is not as important as it is for some other fields (i.e. investment banking), it is important to understand how firms differ from one another. Take advantage of firms that conduct office hours on campus to network with consultants. A good resume is essential to landing an interview. Most consulting firms do not have open lists, so it is crucial to have a resume that stands out. Take full advantage of resume workshops, second-year resume reviewers, and alumni reviewers. Your resume should be set up so that it clearly highlights your achievements/abilities in the context of the Skills & Requirements section above. Good cover letters help, but keep them brief. If possible, use a paragraph to mention one aspect of the firm that was particularly attractive/important to you (i.e. generalist program vs. specialist or vice versa).

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Industry Snapshot

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Once you have landed an interview, mastery of the case interview process is critical. Resources to help you get there include Management Consulting Association (MCA)sponsored case sessions, workshops, and the MCA Casebook. Not everyone will get a consulting summer internship. Consulting firms make twice as many full-time offers as they do summer ones. Know this and have some related back-up options. Corporations (service and manufacturing) offer exciting and relevant alternatives to consulting internships: internal consulting (strategic planning or business development within a company); leadership development programs (a.k.a. general management grooming); brand management and marketing (this is all about project management and strategy); and, operations (the career path for many a CEO). Entrepreneurships or start-ups also offer similar opportunities.

INTERVIEWING TIPS: Know your resume. Be prepared to discuss any item on your resume (no matter how innocuous you think it may be). Prior to the interview, make sure you have nailed down answers to the obvious questions: why consulting; where do you see yourself in X years; what are two of your strengths and weaknesses? Relax. Be calm. Do not get flustered during a case interview. Take time to frame your answer and structure your response. Do not worry about making mistakes. Consulting interviewers like to see you attempt to solve the problem. Pay attention in Marketing and Microeconomics (or at least review your notes before the interview season). These courses provide the most basic and oft-used frameworks for cases. When you are given time to ask questions about the firm, use it well. Intelligent and relevant questions demonstrate your interest in the firm. Think about how many questions you would have if you were buying a new car or new home. You must be able to generate and express this level of interest about the firm at which you are interviewing. If you do enough research on the firm beforehand, you are better positioned to ask key questions.

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SELECTED INDUSTRY PLAYERS: Firms The Advisory Board Accenture American Management Systems (AMS) Andersen Arthur D. Little A.T. Kearney Bain & Company BoozAllen & Hamilton Boston Consulting Group (BCG) Deloitte Consulting Cap Gemini Ernst & Young Hewitt Associates *See firms websites for office locations. Firms Kurt Salmon Associates Marakon Associates McKinsey & Company Mercer Management Consulting Monitor Group Pittiglio Rabin Todd & McGrath (PRTM) PricewaterhouseCoopers Roland Berger & Partners Towers Perrin Zefer ZS Associates KPMG Peat Marwick


SOURCES OF ADDITIONAL INFORMATION: Career Resource Center (CRC): Consultants News monthly newsletter The Directory of Management Consultants 2000 Kennedy Publications The Fast Track: The Insiders Guide to Winning Jobs in Management Consulting, Naficy, M. Harvard Business School Career Guide Management Consulting 2000 The Insiders Guide to Management Consulting, Praksh, G. Management & Consulting: An Introduction to James O. McKinsey, Wolf, W. Management Consulting Resources - Binder WetFeet.com Industry and Company Guides Vault.com Industry and Company Guides Management Consulting Association (MCA): Columbia Business School Management Consulting Casebook MCA website Events: brown-bags lunches, student/alumni panels, case competitions, conferences, and speakers Other: Company presentations Company websites Second-year students


1st Year Core Consulting Classes

1st Year Core Class Consulting InformationSeveral first year classes at Columbia Business School are very pertinent to consulting issues. This section is primarily intended for 1st year students preparing for summer internship case interviews.

MARKETING This course yields perhaps the most important concepts required to excel in case interviews: the case analysis frameworks. Please refer to the Frameworks section later in this Guidebook for an in-depth discussion of the most important ones.

FINANCE Most consulting cases involve little straight finance content, and the ones that do usually quickly lead to the application of one of the case frameworks. However, in the spirit of ensuring that the finance terms that might potentially be mentioned are familiar to you, we have included the following ratio table. A further interview tip: most questions either involve comparing ratios to industry averages to determine a clients competitiveness or evaluating the factors behind a change in a ratio over time.

Item Asset Turnover

Formula Sales Assets

Comments Sales generated from each dollar of assets. A low value signifies a capital-intensive business. Profit margin and asset turnover tend to vary inversely. In a well-run company, current assets should move in accordance to sales. Measure of a companys liquidity. Shows how long inventories are being held. Measure of a companys operating efficiency. Primarily useful when looking at comparable companies margins. Total cash available for distribution to owners and creditors after funding all worthwhile investment activities. For the most part, distinguishes between fixed and variable costs.

Current Ratio Days Inventory EBIT Margin

Current Assets Current Liabilities Inventory * 365 COGS EBIT Net Sales

Free Cash Flow

Gross Margin

Gross Profit Sales


Item Profit Margin OR Return on Sales (ROS)

Formula Net Income Net Sales

Comments Earnings squeezed out of each dollar of sales. Reflects pricing strategy and ability to control operating costs. Summarizes income statement performance. Companies that add significant value to a product can demand high profit margins. But, adding value to a product usually requires lots of assets. A high profit margin isnt necessarily better than a lower one, it depends on the combined effect of the profit margin and asset turnover. See ROA. Falling sales will produce major profit declines in a high-fixed-cost business. Measure of efficiency with which company allocates and manages its resources. Describes operations independent of capital structure. Percentage returned to owners on their investment. Measure of efficiency with which company employs owners capital. Highly correlated with stock price. 20% = company is doing well 15% = average 10% = underperforming

Return On Assets (ROA) (%) Return On Equity (ROE) (%)

Net Income Assets Net Income Equity

Working Capital

Competition tends to level ROE. Sustained high ROE indicates barriers to entry. Current Assets - Current Finances the cash conversion cycle - the length Liabilities of time required to convert raw materials to finished goods, finished goods to sales, and A/R to cash.

COST ACCOUNTING Many cases involve an analysis of costs (direct vs. indirect and cost drivers) and the decisions that can be made using cost accounting data. Unfortunately, Cost Accounting (also called Managerial Accounting) is taught after interviewing season, making a sophisticated analysis difficult. The following should provide a basic understanding of cost accounting and its applications.


1st Year Core Consulting Classes

Objective of Cost Accounting Cost accounting is used to determine the cost of producing different products in order to make more informed managerial decisions. Based on the type of decision to be made, different components of cost can be included. For example: When deciding the minimum price for which you can charge to obtain a large order, only the direct costs need be considered. When pricing a product for general sale, all costs need be considered. Definitions Cost Object: Direct Costs: Indirect Costs:

Fixed Costs:

Variable Costs: Overhead Rate:

The unit whose true cost you are trying to determine (i.e., a TV set). All costs that can be tied to the cost object in some economically feasible way (i.e., the cost of the glass for the screen). All costs that should be allocated to the cost object, but are not directly linked to any one unit (i.e., factory managers salary). This is the same thing as overhead. Same as the definition from microeconomics. Costs that do not increase with respect to volume. These are similar to, but not always exactly the same as, indirect costs. Costs that increase with volume (usually, but not always, direct costs). The number of overhead units divided by the total overhead cost (i.e., $ per managerial hour = total number of managerial hours / total manager salaries). This is then multiplied by the amount of overhead per unit of production (i.e., $50 per hour for managerial time x 0.1 managerial hours per TV set = $5 managerial overhead per TV set).

Other Comments Actual quantities (sales, costs, prices, etc.) are not known completely when decisions are being made. As a result, budget overruns can result by the end of the year. These quantity and price variances can be either positive or negative, but determining the reasons behind them will reveal insight into possibilities for improvement. Some companies pool their entire overhead together and divide it evenly across products. However, some portions of overhead (management time, factory floor space, etc.) may cost more than others, and different product lines may use these different resources more than others. If one product is thought to be more expensive to produce than another, consider whether the different overhead pools are allocated proportional to their use. (For example, if TV and radio production use 75% and 25% of the factory floor space respectively, be sure that 75% of the floor space costs maintenance, cleaning, rent, etc. are charged to TV production).

OPERATIONS Objective of Operations Operations essentially deals with optimizing production of a good or service along a variety of dimensions, including throughput, waiting time, inventory, flexibility, etc.


Types of Processes Depending on the goals of the firm, processes range from assembly lines (mass production of one product for maximum throughput and minimum flexibility) to projects (slow leadtimes but maximum flexibility). In between are batch processes and job shops. Definitions Bottlenecks:

When one part of a process is slower than the ones preceding it, then there is a bottleneck. These are indicated by work-in-process inventory piling up in front of it. (For example, imaging two people are making sandwiches. Person #1 gets out the bread, and person #2 puts on the meat, condiments, etc. on it. If person #1 can get out two slices of bread every 5 seconds and it takes person #2 10 seconds to finish the sandwich, then stacks of bread i.e., work-in-process inventory will build up in front of person #2). Lot Sizes: When using the same line/factory to produce more than one product (for example, the vats used at Coca Cola are used to make Regular Coke, Diet Coke, etc.,) it is often optimal to produce them in batches. The larger the lot size, the cheaper it is to make large quantities. Switchover and downtime costs play a role. Capacity: For each stage in the operation, the maximum throughput (in terms of units processed per unit of time) can be calculated. The lowest throughput (i.e., the bottleneck) determines the capacity of the entire process. Leadtime: The amount of time from placement of an order to delivery. If a factory produces one uniform product (i.e., the Ford Model T) and there are no other orders in the queue, leadtime is very short. For customized orders, the leadtime is the entire throughput time plus the time to produce everything in the queue. Flexibility: The more easily a process can change the end product and the number of ways in which the product can be customized determine its level of flexibility. Putting all of the customizable processes at the end (i.e., choosing the color of a car last, or deciding whether to add power brakes at the end) will increase the process flexibility. On the other hand, if the car is painted in the beginning, the company is less able to adjust its production to meet demand. Relationship between response time and inputs: Because of the existence of backlog, adding inputs (i.e., telephone operators, tellers, cashiers, etc.) to an operation requiring quick response to a queue, drastically reduces average waiting time. This helps eliminate the effect of variation in the rate at which customers arrive in the queue. Inventory: As stated above, the accumulation of work-in-process inventory can indicate a bottleneck. The presence of finished goods inventory, on the other hand, could indicate that production should stop until sales can get rid of them. Otherwise, any additional inventory may become obsolete.


Interview Guide

Nicolas Reuttner

The Basics of Consulting InterviewsINTRODUCTION Though my experience as an interviewer is diverse, and includes journalism, business hiring and military interrogations, my primary experience has been as a recruiter for a top management consulting firm. I led a team of recruiters for graduate hires and personally interviewed over 120 candidates. Additionally, I have interviewed a wide range of MBAs and more senior applicants. The strangest interview experience I ever had was to choose a driver for a 23-ton steamroller from a selection of monolingual Albanians. The following is a distillation of thoughts from my experience and training. It combines direct and vicarious experiences, and a wide range of industry, geographic, and personal styles. Please remember, however, that there are no golden rules; every interview is unique, and so I can only suggest some ideas for your guidance. Also remember that ultimately it is up to you to convince them to hire you! WHAT IS A CONSULTING INTERVIEW? What is an interview generally? An interview is a unique experience of communication between two or more people. In most cases an interview can be distinguished from other forms of discussion as each person is trying to obtain specific information from the other. In the case of a consulting interview, the interviewer is trying to get information about you that is not contained in your CV, recommendations, grades, past work experience, etc. In short, he is trying to see what you are like in the flesh. Dont forget that the interview lasts the entire time the interviewer is exposed to you. Dont think that the time you spend waiting can be neglected or that you can call for a time-out. Studies show that many people take their initial impression of you in the first ten seconds. If you are busy spilling your coffee, picking your nose or flicking through the competitors profile you may find it detrimental to your evaluation. In the same way, dont think when they say thanks for coming that you can flash a smile and say Whooo, well that was tough!, I really bombed that! or worse still how did I do? What are they looking for in an interview? Consultants I know distill their interviews down to two questions: Can you do the job? and will I enjoy working with you? If you fail either of these two tests, you can abandon all hope, and will soon be shown the door.

How do they evaluate you? Policies vary from company to company, and some interviewers will decide on gut feeling. However, consultants revel in quasi-scientific metrics for everything and most large companies therefore have some form of score card on which they evaluate the various aspects of yourColumbia Business School Management Consulting Association Guidebook 2002 Please do not duplicate, copy, print or photocopy 13

character, ability and person. The most rigorous companies require a thumbs-up from everyone who meets you. Others assign a protagonist to push for your recruitment. Either way, this all happens behind the scenes, and you will be none the wiser. Why is an interview so important in consulting? Consulting is inherently a people business. The only product that consulting companies have to sell is the talent of their people. A consultants role has three parts: How well you can identify and process the clients problems; how well you can solve those problems, and then how well you communicate an acceptable solution to your client. As every step requires interaction with your client, you must be superb at interpersonal skills. For example, no matter how intelligent you are, if you cannot get the client to trust you enough to tell you the real problem, you will never get the opportunity to successfully solve it. In the same way, even if you have found the secret of alchemy, but you are unable to convince your client to try it why bother? (No consultant thinks that an idea like that would be best kept to himself!) Also, dont forget the client is paying over $2,000 a day to have a consultant of your stature there - he wants to feel you are worth every cent. You need to be able to give the impression that you are. This is not about being overly formal or heavily intellectual, but rather making them feel that every moment with you is quality time at the highest professional level. With all the press about bright young MBAs who make up the workforce of management consulting, it is crucial that you can demonstrate your maturity and ability. You must have a persona that people many years your senior will trust.


Interview Guide

Methods for Dealing with Interview QuestionsHOW TO ANSWER QUESTIONS There are some basic rules about how consultants think. Using the following intellectual structures to frame your answers to their questions in a familiar style will make it easier for them to evaluate you in a positive manner and could engender a feeling of intellectual rapport. 1. Keep the answers concise and full of content. This means that long and flowery sentences that add little of substance to your answer are not advisable. Nor are long, irrelevant anecdotes from university or prior working life. Make an assertion and support it with fact or example. So in answers to questions like are you a good leader, dont be too modest. Rather, objectify it with something like, When I was elected President, the newspapers used me as their example of perfect leadership. (Well, that might be a bit much, but you get the idea). Consultants thrive on intellectual structure in their thought processes. You will need to build a logical structure to your thoughts and arguments and make it clear that that is what you are doing. (If you are concerned about this, read Barbara Mintos book on pyramid thinking, which is one of the industrys bibles). For example, if you have three ideas on the subject, say so and then enumerate them carefully. Never forget to talk about all of them, give them equal time weighting, and dont be distracted from finishing your reasoning, even if you are distracted by something on the way. One interviewing trick is to interrupt a flow of an argument, purposefully distract the student from his chain of thought, and see if the interviewee finds his or her way back to it. Dont underestimate the interviewers ability: You do not need to explain everything in immense detail, and if they are unable to follow your reasoning they will ask you about it either because they dont understand or they think you are talking nonsense. Either way, they will wish to confirm their opinion. For example, I used to do a case study on the introduction of digital cordless telephones into the U.K. market. One well qualified - but overconfident - engineering student expounded at length on the concept and application of ergonomics in this product. Since I had played a major role in developing the ergonomics of the specific product he cited, I think it is fair to say that I had already forgotten more about it than he would ever know. Despite my none-too-subtle signs of boredom, he refused to be distracted and made a fair fool of himself by using several unsupported and erroneous assertions. The so what, or key take-aways are crucial. Consultants learn that analysis is nice, but without a resulting message it is useless. So remember that when you finish a discussion or analysis, the resulting message must be clear and useful. Ideally, it leads to a new understanding of the issue you have discussed. Dont respond to a question with a question, but if you really dont understand what they meant, ask. Consultants are constantly faced with learning about new companies and industries. They know that you will have to ask questions; sometimes they are setting tasks on purpose to see what questions you will ask. The basic rule of there are no stupid

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questions, however, does not apply. There are stupid questions, in fact, there are very stupid questions and you should not ask them. Stupid questions can contain three major errors. The first is asking for information you should already have, or will not need. The second is to frame or structure the question badly. A badly structured question is ambiguous, unclear, or imprecise. Such questions also have an answer that only adds irrelevant facts to the issue under discussion. The third is not really a question, but more an unstructured monologue of the persons thoughts. 7. A consultant knows where he is heading: the consultant has a critical path in mind for solving the case. If he is leading you, trust him to know what he is saying. He will have run through the case several times before and knows what you need to solve it. In the same way, you will be able to detect when you are going the wrong way in a case, because he will become bored with your approach to the problem. He may decide to play Yes, No, or Irrelevant game with you. This technique means he will not give you any other answers than these words. Dont be disturbed by this, but rather go with the flow and lead the discussion while explaining where you are going. The professional service company. Dont forget that consultants are client driven. Answers should focus on what this means for the client and what is helpful advice. For the unenlightened, helpful = increasing shareholder value. We are in it for the money. Though MBAs should know this anyway, dont forget that all businesses are in it for only one of two objectives: either to make money or serve the community. So keep simple concepts like Profit = Revenue Costs in your head. They can be the key to a well-structured answer. I used to set one case study about customer service, and ask the interviewee to identify an industry or company that had poor customer service. Then I would ask him what to do. In many cases the whole discussion would focus on improving the quality of service, Total Quality Management and doing all sorts of great and innovative things. These discussions, though interesting, failed to deal with a fundamental question of why do anything does it make economic sense for the company? Many companies, for example, have found that offering mediocre service is actually more profitable. 10. Choose your examples. Interviewers may ask you to cite specific examples many interviews at Columbia have focused on the company analyzed in the interviewees firstterm integrated project. Make sure you are up to date on these examples - questions on share price, newest strategy, or press releases are not uncommon. In the same way, support your argument using relevant examples. Make sure you are up to date and can back the example up with specific supporting evidence. I cant help thinking about the Dilbert example of a successful company, which was advised by their consultants to develop further by emulating another company. Preliminary research by skeptical employees showed that this model company had just failed and filed for bankruptcy. 11. Support your argument. Consultants hate little more than, I dont know why, I just feel that way. Professionally, consultants live by rationalizing everything, so you must be prepared to explain any decision you have made about your life, any views you have had or any statements you make with clear and coherent argumentation. 12. MECE - Mutually Exclusive, Collectively Exhaustive. This acronym means you are expected to argue using evidence and argumentation that covers every angle, but withColumbia Business School Management Consulting Association Guidebook 2002 16 Please do not duplicate, copy, print or photocopy

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Interview Guide

clearly separate chains of thought. Your arguments must not overlap but, as a group, be completely conclusive. 13. Prioritize what is relevant. Most cases have sidetrack ideas that, though important, are only marginally relevant to the decision. Be conscious of not devoting too much time to such issues. This I have found is especially dangerous when that marginal issue is one you know a lot about. For example, if you are asked to discuss Gaps sales strategy, and on-line sales are your primary area of interest or knowledge, but at present they are probably less than 1% of sales, beware overemphasizing the importance of that single sales channel. Explain to the interviewer how you are prioritizing and why. So, for example, if he wants you to speak mainly about the on-line sales, then he has the chance to tell you, otherwise concentrate on the other 99%. Pareto Rules! 14. Break down the problem into bite sized chunks: Large and complex problems may not be solvable as a whole, but once broken down into small parts, they usually are. 15. Draw charts and diagrams: Consultants work by producing charts. These are usually a mixture of words and pictures, and are a very effective method of communication. If you are given a complex issue, try mapping out a decision tree, block chart or just a list of issues and sub-issues you think need to be talked about. If you feel confident enough, you may consider using some economists graphs but make absolutely sure you get them right. 16. State assumptions: Many problems have no absolute right answer. Basing your thought process on assumptions is an obvious and neat way of solving these problems and is wellaccepted business practice. More importantly, clearly articulating and sometimes defending assumptions in case interviews can win you major points with an interviewer. It is a common fault of bright people to make assumptions and not tell anyone else they have made them. What appears completely coherent to you fails miserably to convince anyone else who cannot follow your secret thought processes. 17. Conclude well: when you finish, summarize what you have said succinctly. Consultants are going to push you in the interview because they want to see how far you can go. This means two things. First, be worried if they are not pushing you and second more usefully they are going to push you to the boundaries. By definition, that means that there will be a point when you are out of your depth. They are not doing this to be mean, nor do they expect you to be able to know everything. They are just trying to see just how much you do know, or are able to cope with. APPROACHES TO PROBLEM SOLVING Interviewers are giving you a problem to solve in order to evaluate your problem solving thought process. That is the reason why they give you pointless mind exercises like how many rivets hold the Statue of Liberty together. Even if you are one of those people who cant help remembering the average speed of the first flight across the Atlantic - that is not what they want to know. They want to see how you approach the problem and hear how you rationalize an approach. One of my favorite questions was What is the value of a human life? The answers I received varied from the $500 dollars, because that is what it costs me to buy a hit to long discounted valuations of the economic benefit a person creates though 40 years of working life, minus all the costs incurred. An answer I did not like - but had to live with - was I thinkColumbia Business School Management Consulting Association Guidebook 2002 Please do not duplicate, copy, print or photocopy 17

questions of this nature are unethical and I dont want to answer it. Please ask me something else. The only wrong way to answer this question is to bluster about all people being equal and it being impossible to quantify. Consultants often need to find the strangest approximations for all sorts of weird things - and you need to be able to structure a logical and rational approach to just about anything. Consultants have a multitude of ways of approaching problems. Here is a cross-section of some of them you may wish to think about using. They are all ways in which you might approach solving a case, each appropriate to a different issue. Choosing the correct one is an important part of the problem solving skill. Hypothesis driven This approach requires analyzing a situation then hypothesizing a solution very quickly based on intuition and experience. Once this hypothesis is developed, you build up a series of tests that conclusively prove your theory. If the tests fail to conclusively prove your theory, you must start again based on the knowledge you developed the first time through. For example, a manufacturing company may be in financial trouble. We know that the reasons could be either revenue side or cost side or both. If it is revenue, then the price could be wrong or the volume is too low. If it is cost based, then either the direct costs or the overhead are too high. Assume we can quickly identify that our contribution margins are excellent but our volumes are significantly below expectations. The competition has dropped their prices to 20% below ours. Our hypothesis, therefore, is that our relatively high prices are making our products uncompetitive, and this could be tested by lowering our prices and checking for a corresponding demand reaction. Searching for a solution a.k.a. guessing This approach, which usually involves just shooting an answer from the hip, is very inelegant and should not be used if it can be avoided. It is basically guessing for whatever might be wrong and is usually fairly ineffective. Tool driven Many consulting companies have proprietary approaches and analyses that they apply to a given situation. For example, BCG has their own portfolio matrix for explaining the markets, and Stern Stewart has the EVA concept. If the company you are interviewing with has some wellknown concept frameworks, you should be familiar with them, even if you dont use them to solve the case. Analogy driven Though useful, this can be dangerous. This approach means learning from other relevant examples in the past. Some say, the only thing we learn from history is that we learn nothing from history, others think that there are useful corporate lessons to be learned. Either way, keeping up with the Jones in the corporate world and transferring ideas from one industry to the next are both commonly accepted and used consulting practices. Do not, however, fail to answer the question, by rambling on about something else.


Interview Guide

The Audience who you are talking to?THE IMPORTANCE OF CULTURE WHO IS YOUR AUDIENCE Consultants generally are very self confident; their job requires them to take many high level decisions at an uncommonly early age, and to represent themselves as self assured and in control of very complex situations. In short, a 26-year old MBA is advising people the age of his parents what to do with their multi billion dollar firm in an industry they invented and he did not know existed 6 months ago. This engenders a type of person who, though socially very adept, still often seems wiser-than-thou in his style. My advice is to ignore that completely. Any attempt to knock them off their perch could cost you a potential job offer. At the same time, flattery is likely to be seen through and found irritating. For many people a nod is as good as a wink. Being in the habit of extracting hard-to-get information from unwilling clients means that they have very subtle ways of obtaining information from you as well. Though I do not recommend measuring every word before uttering it, I would caution you to have a coherent story to tell about yourself and sort any uncertainties out in your own mind before the interviews (see questions you may be asked below). For example, one area any wise consultant is checking is whether you will accept the uncomfortable lifestyle of consulting. Though if you were asked directly, your answer would be no problem, other lifestyle questions might tell a different tale. For example, any too regulated habits a regular Wednesday night poker game or Friday ballgame, or a spouse or pet - could be seen to be limitations on your flexibility, and therefore your ability to prioritize client work ahead of personal interests. Consulting firms have very strong corporate cultures. If you are lucky enough to return from the interview battlefield with multiple offers, remember that your interview experience is likely to be similar to the working style they have. Since you will see different styles and manners, remember to pay attention to these as they may help with your employment decision. Remember that you are interviewing them as much as they are you. Dont make it obvious, but keep it in mind. In the same way, consultants are also subtly trying to recruit you during the interview. It is not in their best interest to make the interview unpleasant, so although you can expect a challenging and tough interview it should never be mean or unfair. In presenting yourself dont be overconfident. You are good: we all know that otherwise you wouldnt be at Columbia or interviewing with these companies. They are already impressed with you, but there are lots of others who are at least as good. Being humble while promoting your achievements is a tricky art. On the one hand, you want to show off everything you have accomplished and how well you did this; on the other hand it is crucial not to show off. I heard recently of a very cocksure applicant who could not be brought down from his hilltop until the interviewer asked him with all your experience, this should be an easy question. How would you propose to bring about world peace and end hunger in the next two decades? There is no record of what happened after his jaw hit the ground. My suggestion is to try and come up with methods of phrasing your key attributes in a way that sounds humble but still demonstrates your ability. One of the best ways I have found to do this is to focus on facts. There is a story of an elderly American being interviewed by an inexperienced and badly prepared manager who askedColumbia Business School Management Consulting Association Guidebook 2002 Please do not duplicate, copy, print or photocopy 19

him if he had any leadership experience. The man thought for a while and then said well, I did lead the U.S. forces in the Korean War does that count? LANGUAGE & BODY LANGUAGE Non-linguistic communication, physiological games and body language can be dangerous games. Though they can be useful if correctly applied, a stilted or conscious use can do greater damage than good. Many interviewers are taught these things, and if they notice their use, they may not like it. The most effective non-linguistic communication is just an exaggeration of things you do anyway. If you want to enhance non-linguistic communication, develop and practice these skills before interviewing starts. Unpracticed body language movements will come across as wooden and the interviewer will notice something is wrong. Also, you are likely to lose concentration as your thoughts are on your body rather than the conversation. Here are some useful examples that may serve as pointers: Mental Rapport Building a communion of minds with the interviewer is about finding the wavelength the other person is thinking on and adjusting your thoughts accordingly. This can be done on basic levels like agreeing with their views, or more subtle ways like approaching problems in the same way. Physical rapport Often called mirroring, it develops the concept that people communicate better when they are physically in tandem. So if the interviewer is leaning forward on the desk and using his hands to assist his conversation, he will find it agreeable if you do the same. If he sits back, do the same and so on. Body signals Consultants watch for signs when they put you under pressure. For example in response to questions like why did you only get a P in accounting. Typical movements like crossing your arms, shifting in the chair, not looking them in the eyes or stuttering are all well known. Less well known but equally true is that many people develop red spots on their neck when they feel pressure. Few wise consultants would take such a sign on its own as a determining factor in their evaluation, but they do become parts of the puzzle that they make up of you. Expect them to put you under pressure at some point in the interview and be ready for it. Therefore it is wise to practice how to handle any tricky issues by preparing answers. Also, if you must shift around in your chair, time it correctly. Unless you are looking for a very specific sort of job, sitting with you knees too far apart is definitely taboo. When you shake hands, do so firmly and crisply. Keep eye contact it communicates honesty and lets them see into you. Swinging a conversation A professional interview trainer once compared having a good conversation to swinging through the jungle from one vine to the next. The conversation has a natural direction and its own momentum. It is passed between partners who alternate at being the vines on which theColumbia Business School Management Consulting Association Guidebook 2002 20 Please do not duplicate, copy, print or photocopy

Interview Guide

conversation swings on to the next person who is waiting to catch it. This may all sound metaphysical to you, but do think about getting ready to receive the conversational baton from the other person, furthering it and pass it on in the right direction. Flirting No matter whether you are Gods gift to man or Adonis himself, flirting is not advisable. Even if you think that you are only being charming, you are more likely to make a fool of yourself than advance your position. I once received an application from a woman whose extracurricular activities were listed as: exotic dance, massage, and human interaction. Every man in the office offered to interview her, though no one was serious about offering her a job. My advice is make sure to keep it ultra-professional from the start and people will hire you for your brains, not your body. Buzzwords Using a common language can be an advantage. A wisely exercised stable of buzzwords can create rapport and serve as a shortcut to the analysis or concept you are expressing. If you use one make sure you really understand it otherwise you are in very deep water with no paddle in sight and a hole in your boat. The attached is a very short extract from a long, long list. Key/Critical Success Factors Core Competencies Paradigm Matrix Resource allocation Share holder value Downsizing Right sizing Restructuring BCG matrix Life cycle Optimize Profit maximization Assets / Liabilities Value Chain Value creation Ratio Scenario SWOT analysis Learning curve Cash cow Lever Diversification Game theory Net Present Value Competitive advantage JIT (Just In Time)


Consulting Questions what you may hear or sayQUESTIONS YOU MAY RECEIVE No list of these questions could be exhaustive, and this whole book is dedicated to answering this question, so this section will be brief. This list of questions is designed to help you think about the person you want to present yourself as in the interview. Whether explicitly or not, you are likely to be asked many of these questions. I suggest developing answers in advance as you should find ample opportunity to use them in response to these or other questions. So, tell me about yourself. What is your weakness? What is your strength? Your grades please comment? Why do you want to join this firm? Why are you interested in management consulting? Are you prepared to drop everything and travel? What do you think consulting is? What in your background qualifies you to be a consultant? If I should remember one thing about you, what should it be? What are you expecting to do when you are here? Why are you the best person for this job? How do you have fun? What do you value in a teammate? Tell about a time when you? - Worked in a team - Led - Failed - Learned something - Had to convince someone - Needed to obtain some hard to find information Do you consider yourself ethical tell me about an ethical dilemma you have faced? Can you keep a professional secret? Are we your top choice company? Who else have you applied to? Which elective courses did you take why? What do you think about the development strategy of your IP company? Tell me about a story you have been following in the press? What are you prepared to do to get this job? If you were me, why would you hire you? Do you do community service?Columbia Business School Management Consulting Association Guidebook 2002 22 Please do not duplicate, copy, print or photocopy

Interview Guide

What did your MBA teach you? What was wrong with your last employer, why arent you going back?

Oh, and another thing. I know it sounds silly, but know your rsum inside out. Nothing is more embarrassing than saying did I write that? QUESTIONS TO ASK Most interviews finish with something like do you have any questions for me? You must have several intelligent questions prepared. Not to do so would show a lack of interest. Also remember that you are interviewing them as much as they are you. Many people are evaluated by the questions they ask this is especially true in consulting where the ability to find information is a key skill. Questions you ask should strike a balance between showing you are informed and showing you would like more information. Also, they should be well-articulated and not be otherwise publicly available e.g. on their web-site. Politeness also suggests that the answer should be quite short as the interviewers mind is already on filling out your evaluation form and the next appointment for which he is invariably running late. Here are some of the most useful and interesting questions that I think you might consider. Though you must be polite and tactful, I would suggest that you make sure you get a specific answer to the questions you ask. Dont let them get away with generalities just because they may not be comfortable answering them. For example, one of the questions that I am trying to answer is how the top companies differentiate themselves from each other. No one has yet given me a good answer to that. What project are you working on now, what are you doing and what do you find interesting about that? What has the highlight and low-point been for you so far? What is the industry and functional structure of your business what areas would I be working on and who determines that? How would my performance evaluations work? How much choice do people have as to what projects they work on or who they work with? What have your working hours been recently (what do you consider a late night, or how many weekends have been worked)? Is this typical? Can you give me some representative example of recent projects that are typical of what I can expect to be staffed on? What exactly would my role be? What is the expected career development for someone in my position? What is the professional turnover rate or the expected length of stay for an MBA? What is the training and professional development program? How much time should I expect to spend at the client / in the office? What is the typical length of a client project? How much of your client business is repeat business? Who do you consider your direct competition? What is the associate to partner ratio?Columbia Business School Management Consulting Association Guidebook 2002 Please do not duplicate, copy, print or photocopy 23

What is the office environment like? Do I get assigned fixed desk or is it hoteling? (hoteling is where no one has their own desk but just takes the first one they find) What is the support staff structure? What social events are there? What alumni contacts do you have? How are they used? Why did you decide to join this company? What were your alternatives? Have your expectations been fulfilled? What are the client confidentiality policies? What sort of dilemmas might I be faced with and how do you suggest I deal with them? What are some of the main reasons people leave?

And, just to be different, here is a short list of questions not to ask: So, the interview was good for me, how was it for you? Do you think I would fit into your company? What is my salary, holiday or other benefits? Who are your clients? What do you think of this other company I am also interviewing with? Is there any weakness of mine I can change your opinion on? WHAT YOU NEED TO TELL THEM Remember that the interview is a sales pitch. They are trying to determine whether you are capable of doing the job and whether they like you. You need to demonstrate that the answer to both is yes. How you do it is up to you sorry not to be more helpful, but each person must develop his or her own unique pitch and I am looking for a job too!


Interview Guide

TOPICS TO AVOID There are some topics I suggest you avoid. If they steer you in a direction you dont want to go, there are many subtle ways to move the conversation on. If the subtle approach doesnt work, just tell them to move on. Insider information Some interviewers may be unscrupulous in trying to get competitive information out of you. As the consulting industry itself is well used to confidentiality, they should respect if you choose to keep sensitive information to yourself or make it anonymous. Alternatively just be blunt and say, sorry, I am not allowed to talk about that. Dont try and make friends by sharing things you should not. Client confidentiality is a cornerstone of the industry - they may also be testing you to make sure you can keep a secret. I really want another job If you are not sure you want this job, do keep that very much to yourself. A lack of hunger for the job has lost many a brilliant applicant a potential position. Other important priorities Opinions on this vary. Many people recommend that it is wisest to keep other priorities like your pet poodle, husband or membership of a rock-band to yourself. The interviewer may feel that you have too many ties to live the roving life of a gypsy. Others argue that if you are not up front and honest with them they will accept you under false pretenses that you will not be able to maintain later. In my view, I would keep that sort of thing out of the interviews unless asked and bring it up once they have made you an offer, which is the right time to work out issues of this sort. Also beware to stick to the legal guidelines. Copies of what they can and cannot ask you are available from Career Services. Negativity Everyone dislikes a negative attitude. Nothing is absolutely awful it is just sub-optimal. Not impossible just more of a challenge. Being positive also shows enthusiasm, and allows you to demonstrate that you are likely to be a good team player rather than a critic.


What consultants are looking for how they mark your performanceAs noted earlier, most consulting companies have a scorecard on which they evaluate your performance. Not all the issues can be addressed in each interview. This means they may well make a judgment on some marginal data they have taken from you; they may infer it or they may not mark it at all. Usually a follow-up interview will cover the topics that have been missed before. While I dont suggest you try to analyze each question to see how it fits into this framework, I suggest that you try and think before the interview about what evidence you have for shining in each category, and if the opportunity arises, make sure to mention it. Though the scorecards differ, most evaluation methodologies are either point based or scaled. The first is just a point system: for example marks out of 5, where 5 is outstanding, 4 above average, 3 acceptable, 2 unacceptable, 1 you must be joking! Several companies rule that a single mark below acceptable means automatic rejection. The second marking scheme is positive opposites on a scale where neither opposite is derogatory; for example leader/team-player or analytical/intuitive. These scorecards often give a better picture of who you are, but are much more difficult to use as the basis for an assessment. Though each company has its own scorecard, here are two generic alternatives. Thinking Hard/quantitative skills Intelligence or quick thinking Clarity of thought Structured thought processes Intellectual nimbleness Communication Clarity of expression Persuasiveness Foreign languages Business sense Business acumen Past experiences Intuition Person Personal presentation dress and style, clean shoes Social skills do I like you Cultural fit into the corporate culture

An alternative checklist is the following. As you will see, they end up asking many of the same questions, or at least dealing with the same issues. Teams Problem solving ability What teams have you played on, and how Have you demonstrated academic did you do excellence Can you be led Have you solved business problems or assignments What have you led or managed What technical training (engineering, How did you get to that position MBA) do you have How well did you do as a leader Personality Drive How are you in front of clients What aspirations do you have What aspirations have you had did you Can you communicate well in an interview Do I trust you fulfill them Do I believe you Are you hungry for this job Can you convince meColumbia Business School Management Consulting Association Guidebook 2002 26 Please do not duplicate, copy, print or photocopy

Interview Guide

Conclusion I do recommend that you get in as much practice as possible. Try and simulate real interviews with people you dont know, and get them to debrief you at the end of the interview, pointing out what they liked and did not like, as well as making recommendations on how to change. In addition, here are ten things to remember on the morning of your interview: 1. You are being interviewed all the time 2. Prepare answers and a story before you go in 3. Know the company, your rsum and yourself 4. Take the time to structure your answers 5. Answer the question they are asking and give a so what 6. Smile and enjoy yourself 7. Remember that it is a sales pitch 8. They are trying to determine whether you are capable of doing the job and whether they like you 9. Have good questions lined up 10. A firm handshake and good honest look goes a long way Finally, dont forget that in real life nothing ever goes 100% right. Dont panic if you make an error, accept it and move on.

With that I wish you all the best possible luck!


FrameworksIt is essential to demonstrate to the interviewer that you think in a logical, organized manner. The use of a framework helps you accomplish this task by setting out the general topics of analysis you will cover in answering the case. For example, if asked what you would recommend to a company considering launching its core product in South America, the interviewer doesnt want the very first thing out of your mouth to be, have they sold anything in South America before? While in your mind you may have a very good reason for asking this question, the interviewer wont know what your line of thinking is. Instead, it is imperative to first lay out what your course of analysis will be. For example, if you choose to use The Four Cs framework (see below), it would be appropriate to start with something along the lines of, Ok, there are several things we must examine in order to reach a recommendation. First, we should look at the target customers for this product who are they and what are they looking for? Is there a specific need for this product? Next, we need to examine the competition what products are they offering in South America and how will they react to our product introduction? Then we will focus on the costs of the launch and the cost structure of the company is the firm in a financial position to proceed with the launch at this time? Last, we must examine the company itself does it have any experience operating in South America? Do members of the management team have specific talents that would be beneficial to a launch in the region? With this framework now specified, you can proceed with each of the four categories in detail and the interviewer will rest comfortably in the knowledge that you are proceeding in a well thought-out and organized manner. Varying opinions exist as to how explicitly you should introduce the framework you will be using. One student who interviewed extensively writes: In the beginning of your practicing, the different frameworks are invaluable to get you to think in the right way. However, it is very important to realize that the practice is there to allow you to be able to let go of the rigid frameworks and to be able to talk as naturally as possible throughout the case. Thats when you will have reached the level the top consulting firms are looking for. And thats when youll be able to tackle a case without even explicitly mentioning any framework. Because lastly, it has been my experience that very few cases nicely fit into one of the many frameworks everybody seems to be using, so that it becomes really important to be able to think through the situation yourself, without clinging to any particular framework. Most consulting firm interviewers have said that while they dont want you to say something like I will be using The Four Cs framework, they do want you to state in the beginning how you are going to organize your analysis in the case.


Frameworks

Following is an overview of the most popular frameworks. These frameworks are not strokes of genius, but rather simple, easy-to-remember methods of organizing your thoughts and questions. Keep in mind that it is possible you will get a case that cannot be answered by strictly sticking to one of the frameworks listed below, and you may have to make some adjustments or make one up completely. Even if you make up a framework, it is important to let the interviewer know what youre thinking and how you are organizing your analysis.

THE FOUR Cs Often used when contemplating capacity-building options, new product introductions or entering a new market. Can be used for evaluating almost any strategic initiative. Customers: Who are they and what do they want? What can they afford? What are they willing to pay for your product? Are their needs or tastes changing? Is the overall market growing or shrinking? How do they perceive the brand name? What is the Economic Value to the Consumer (EVC Analysis)? Overall, does a strong enough market exist to justify the proposed action? Who are they and what are their current offerings? How much market share do they have? How are their brand names perceived in the marketplace? Are they producing to capacity or do they have excess capacity? How do their cost structures compare to the clients? How will they react to the clients product introduction or capacity increase? Refer to Porters Five Forces! Overall, is the competition currently strong enough or will their probable reactions be enough to negate all benefit from the proposed action? Does the client have access to the funds required to take the proposed action? What is the breakeven analysis? Cost is often overlooked when studying strategic initiatives, despite its obvious importance. If the client cant pay for it, it cant do it the case is done. Dont forget to address it! What are the clients key strengths, resources and overall strategy? Are they congruent with what is needed to make the proposed action a success? What are their Strengths, Weaknesses, Opportunity, and Threats (S.W.O.T.)? Overall, how well suited is the company to carry out the proposed action successfully and to benefit from it?

Competition:

Cost:

Company:


THE FOUR Ps Useful when the case calls for the examination of product marketing, new product development and/or introduction. (Note that the example case question in this sections introduction could just as appropriately be answered with the Four Ps framework). Product: What is it? How does it differ from the competitors? What are the competitive advantages of this product? What will the price be? What are the competitors prices for competing products? What discounts or other incentives will be offered? Will prices vary across geographic lines? How much do the target customers value the product (what are they willing to pay)? Will the product be priced at or below its perceived value? How will the product be promoted/advertised? Will promotion be adequate to educate prospective customers of the products existence? [Place actually means Distribution, but Four Ps has a better ring to it than Three Ps and a D]. What distribution channels will be used (retail stores, direct mail sales, an army of salespeople in plaid jackets selling door to door)? What will the costs of this distribution be? Is the distribution strategy adequate the get the product sold at the anticipated volumes?

Price:

Promotion:

Place:


Frameworks

THE PROFIT EQUATION Simple, but invaluable when asked to explain changes in profitability. Profit = (Quantity x Price) - Costs There are three drivers of profitability: sales volume (quantity), price and costs. When doing a case that involves a change in profitability, you must determine which of these elements have changed, and then determine the causes of those changes. Issues related to each of the three that must be examined are: Price - Consumer demand elasticity - Competitors price changes - Market power can we charge a premium? Have we lost a previous ability to charge a premium? - Product differentiation Sales volume (quantity) - Loss of market share due to competitors actions - Growth/reduction in overall market - Increase/decrease in sales to current customers with current products - Increase/decrease in sales to current customers with new products - Increase/decrease in sales to new customers with current products - Increase/decrease in sales to new customers with new products Cost - Portions which are fixed and variable - Time frames in which costs are avoidable - Allocation of costs to product, overheads etc.

Note: changing volumes can wreak havoc on profitability when looked at from the perspective of fixed vs. variable costs. Be sure to understand what happens to fixed cost per unit when volume declines (it increases) and how this can affect profitability in capital intensive businesses.


PORTERS FIVE FORCES Given how often you have heard (or will hear) about Porters Five Forces, youd think it would do your laundry for you. Well, it is powerful, but its best used for determining the competitive strength of a particular industry or when evaluating a strategic decision. How well a company will do (i.e., how good its profit margins and economic returns will be) in a particular industry depends on the strength (power) of the following five factors: Barriers to Entry: How easy it is for firms to enter the industry? Do barriers to entry exist such as patents or high switching costs that make it difficult or unattractive for new entrants to join the market? Do substitute products exist? Could they exist soon? This doesnt just refer to competing products that serve the same function, but also products that consumers might buy in lieu of the entire product class (i.e., people who buy video cameras instead of photographic cameras). The strength or competitive advantages of the suppliers to the industry are there only a few suppliers of a much-needed part? Does demand exceed supply at current prices? Does the strength of their business condition make it difficult to negotiate good prices? Similar to power of suppliers, but in this case the company you are analyzing is the supplier (to the buyer). How much relative power do the buyers have over the company? Is competition in the industry rational (based strictly on rational business decisions) or are there rivalry and/or personal issues that force CEOs to compete irrationally?

Threat of Substitutes:

Power of Suppliers:

Power of Buyers:

Competitive nature:

In general, an industry is attractive (more profitable) if barriers to entry exist, if there is little threat of substitutes, if the power of the suppliers and buyers is weak, and if competition is rational within the industry.


Common Case Types

Common Case TypesThe major types of cases are: 1. Business Cases 2. Estimation Cases 3. Game Show Cases BUSINESS CASES In addition to testing your ability to solve business problems logically, these cases also test your general business knowledge. Core courses in microeconomics and marketing provide the basic tools and concepts to approach these cases. You are given a certain amount of information that may vary according to the interviewers style and the type of case. Write down the pertinent facts. The ability to ask the right questions in order to arrive at the dynamics and drivers of a business or industry is one of the most valuable consulting skills. Some interviewers open the case with only one line, and expect you to probe for more information by asking thoughtful questions. However dont spend too much time asking a lot of questions, as you may appear to be taking a hit or miss approach to the problem rather than setting up a framework of analysis. Some issues you may wish to consider addressing: relevant markets and nature of growth in these markets nature of demand and future market potential relative cost positions of the competitors nature of competition, and competitors reaction to new entrants and price cuts existence of market niches, and their relevance to the client effects of an increase in supply on industry price levels barriers to entry and exit existence of competitive advantages such as economies of scale, learning curve, and external factors such as government regulations

other

Focus on the question and the issues on the table. With some information in hand, think about the problem you are being asked to solve. If the case is about declining sales, do not start to evaluate the companys debt to equity ratio. MECE or Mutually Exclusive and Collectively Exhaustive is a favorite term of consultants. This means that the framework you use should provide a number of different options which are mutually exclusive but which together account for all possible causes i.e. collectively exhaustive. Applying a good framework ensures that you do not ramble or jump all over the place. Finally, creativity, or in consultant-speak, out-of-the-box thinking is also highly valued.


ESTIMATION CASES You are asked to come up with an educated guess of some number such as how many gasoline pumps are there in New York City? The ability to work with incomplete or unavailable data, and generate reasonable estimates is a crucial skill in consulting. Make plausible assumptions. Dont just pick a random number. Even if it is wrong, as long as your number is grounded in common sense or backed by a sound rationale, you are fine. For example, common sense tells you that the population of New York City cannot be over fifteen million or under three million (its eight million). Lay out your logic before you start making assumptions. Set up your answer in a tree diagram with the branches as various components of data that will help you arrive at a final number. For example, in estimating the number of gasoline stations two of the branches you should consider are the number of cars in the city and geographical size. Use nice round numbers to simplify the slog of dividing or multiplying. Conduct a sanity check on your final number. Even if your assumptions appear sound, you may have made a calculation or logical mistake. For example, does it make sense to have over 600 gasoline stations in Manhattan when this would probably mean a station at every street corner?

GAME SHOW CASES These cases test your analytical and creative abilities. They could be anything and everything. Keep in mind that there is always method to the madness even when you are asked to explain why soda cans are cylindrical. Again, the ability to reason and support a rational line of thinking is the key. The reasons why soda cans are cylindrical probably cover a whole plethora of issues from distribution to design. Some reasons why: cheaper and quicker to produce since you dont need to mold it into a square shape, easier for consumers to hold, easier to release from vending machinesso you see this wasnt such a ridiculous case after all.


The Cases

The CasesThe sample cases in this book are presented in three sections, one for each of the major case types: Business, Estimation and Game Show. Cases in the beginning of the Business section are written with the full discussion between the interviewer and the candidate detailed to give examples as to the typical conversation and questioning that occurs during a case. You will see that, especially in Business cases, the interviewer is expecting you to come up with appropriate questions in order to get the additional data you will need to answer the case. The following cases were submitted by students and are based on actual cases given to them during interviews. Keep in mind that the solutions are the ones used by the students and may or may not be exactly what the interviewer was looking for. Use the answers as examples as to how to set up and go about answering a case, and remember that many appropriate variations are possible. For the cases with the full dialogue written, regular text after each question is the students responses. Italicized text after the ! symbol represents the interviewers comments or answers to the students questions.


Business Type Cases (full answers)The client is an U.S.-based wine manufacturing firm looking to expand globally. They have retained us to advise them on the valuation of a South African based wine company that they are looking to acquire. Why dont you walk me through some of the things you would consider in advising the client?

Id like to evaluate three broad areas the clients strengths & weaknesses both financially and from a business standpoint, industry growth trends including a competitive assessment in the United States and finally evaluate the targets strengths and weaknesses before actually carrying out the valuation. My objective is to evaluate the vulnerabilities need for specialized inputs or labor, power of suppliers and buyers, threat of competitive attack, need for customer service, etc. and variabilities historical sales growth, profit margins and expected growth trends in the industry that our client faces. This will be critical in undertaking the actual valuation. !"OK, that sounds like a good overview. Why dont you tell me the various steps that you would take in the valuation? At this stage, I felt that the interviewer was probing for the mechanics of a valuation. Well, once we have undertaken the variability and vulnerability assessment, we can identify both a realistic worst case EBIT growth and a target capital structure for the company and carry out a pro forma financial statement projection, for say, five or ten years out. Then, we add back noncash items, changes in CapEx and working capital and compute free cash flows. Once this is done, we can compute a weighted average cost of capital and discount the free cash and the terminal value, which can be computed with an assumption of stable growth at the end of our projection horizon. !"How would you calculate the WACC for the South African target? Id first identify the equivalent of the long-term Treasury bond here in the U.S. We can then look at the beta for the target and using a market risk premium of 4% or so to figure out the cost of equity. Id probably also add a country risk premium for South Africa and a size-based premium based on the market cap of the target. !"Interesting. How would you figure out the country risk premium? Ideally, if there is a dollar-denominated bond available in South Africa, Id identify a bond of identical maturity here in the U.S. and the spread in yields between the two bonds would be the country risk premium for South Africa.


Business Type Cases (full answers)

!"Somehow, I dont like using a country risk premium. It seems very arbitrary. Im not convinced how or why such a premium is applied. But I agree theoreticians tend to recommend using something like this. At this stage, I was not going to argue with my interviewer. I vaguely agreed with him, but thankfully we were well out of time and he said hed love to chat with me about this later. I found out through the course of the interview that I was being considered for the Corporate Finance & Strategy practice, though I had not explicitly expressed an interest in this practice.


The client is a division of an industrial chemicals firm. They are in the business of manufacturing fibers and have had sales of $1 billion. Their concern is that the sales have been declining steadily over the past five years. Their objective is to identify three to five new lines of business with total revenues of $300-500 million utilizing existing capacity in the fiber manufacturing facilities. They have come up with a new fiber that has very good absorbency, something like 10 times its weight, which is a breakthrough in the industry. The client is looking to enter the urban pet care market in the U.S. with this new high-absorbency fiber. They want to manufacture pet care pads, sort of diapers for pets in urban areas. The client would like us to evaluate the potential of this idea, which is where you come in. I would explore the following areas and in the process hopefully glean insights to whether or not the pet care diaper sounds like an attractive option for our client. First, Id like to learn more about the client. Then Id like to understand the market potential, then assess competitive trends and finally focus on the particular product in question and the clients ability to execute with regard to bringing this product to market. !"Sounds good. Can you tell me more about the clients strengths? !"Well, they are an established industrial products manufacturer, their fibers are specifically used in the fashion apparel industry and for the manufacture of cigarette filters. Theyve had sales in the billion-dollar range, so they are reasonably big. Do we know how strong their brand is in the customers mind? How strong are their marketing skills? The reason I ask is to understand whether or not our client is best suited to bring this product to market, if there is demand for it. !"Their brand is pretty well known, but not necessarily directly by the end customer. They have not done any marketing in the traditional sense and have no advertising experience at all. Oh, I see. If they traditionally have not interacted directly with the customer, how does their value chain look like? !"Good question. They deal largely with distributors, who in turn sell the products to retailers. The retailers handle the relationship with the end customers. Great. Id like to modify my original framework slightly and explore this value chain a little further. How powerful are these intermediaries, and would the client want to continue to use them in bringing the pet sponge to market? !"The client prefers to continue using the intermediaries. They are reluctant to try things that they are not necessarily experienced in. The intermediaries know this and consequently the distributors would demand a 50% markup while the retailers would require a 100% markup.Columbia Business School Management Consulting Association Guidebook 2002 38 Please do not duplicate, copy, print or photocopy

Business Type Cases (full answers)

Interesting! Why dont I move to the next area of my original framework, market potential? Do we have any research on the size of this market? !"Not really but how would you go about sizing the market? Well, Id try to get a sense for the size of the urban pet owner market. Lets assume that of the 100 million households, 40% or 40 million households are urban households. Of these, lets assume that 40% of the households, i.e., 16 million households, own pets. Im considering only dogs and cats as relevant pets for the product. Lets further assume that each of these households has 1.5 pets. This results in about 24 million urban pets that are potential users of the sponge in question. I dont have a good idea how often these sponges would need to be replaced. I know my niece goes through 4 to 6 diapers per day. This is probably too high. !"Youre right. Remember these are high absorbency sponges, but its not clear how tolerant pet owners would be to the smell. # Lets assume that they would want to replace the sponge every other day. OK, that would result in 24 million times about 180 sponges a year or 4.32 billion sponges annually. Wow, that seems like a pretty big number! With a 20% market share, our client should be able to sell assuming that there is a customer need for it about 800 million pads annually. Before I figure out the dollar value of this market, let me try to understand if there are any competitive products in the market, how they are priced and if indeed there is a demand for these products. !"Well, there is no major national brand out there. Local pet stores tend to sell such pads for about 50 cents per pad. The demand is quite small and sales are restricted to the local stores. Is our clients proposed product any different from these loc

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